Oil Prices Fluctuate Amid Supply Concerns

Oil prices edged lower on Thursday following a sharp rise the previous day, driven by a larger-than-expected draw in U.S. gasoline stocks. Market sentiment remains divided as economic concerns weigh against strong short-term demand. Brent crude futures dipped by 3 cents to $70.92 per barrel, while U.S. West Texas Intermediate (WTI) crude fell 8 cents to $67.60. This decline followed a 2% rally on Wednesday, fueled by data revealing tighter U.S. oil and fuel inventories.

According to U.S. government data, gasoline inventories dropped by 5.7 million barrels—far exceeding analysts' expectations of a 1.9 million-barrel decrease—while distillate stocks also declined more than anticipated. Despite a modest 1.4 million-barrel increase in crude stockpiles, lower-than-expected builds suggest stronger consumer demand. "The significant drawdown in gasoline inventories hints at a seasonal rise in consumption, but ongoing global trade tensions are limiting bullish momentum," said Hiroyuki Kikukawa, Chief Strategist at Nissan Securities Investment.

Economic concerns are being amplified by escalating trade tensions. On Wednesday, former U.S. President Donald Trump threatened additional tariffs on European Union goods, raising fears of a global trade war. Such protectionist policies have rattled markets, heightening fears of a U.S. recession. The economic uncertainty continues to affect oil market sentiment, with traders balancing supply concerns against potential economic slowdowns caused by protectionist measures.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) reported a 363,000-barrel-per-day (bpd) increase in February oil output, led by Kazakhstan. This rise poses a challenge for OPEC+ in enforcing production limits. Despite the increase, OPEC maintained its forecast for robust global oil demand in 2025, driven by ongoing road and air travel. However, analysts remain cautious, as adherence to production quotas remains inconsistent.

In addition to supply-side dynamics, market observers are monitoring demand indicators closely. JP Morgan analysts noted a 5% year-over-year decline in U.S. air passenger volumes in March, reflecting weaker jet fuel demand. Nevertheless, global oil consumption averaged 102.2 million bpd as of March 11, exceeding expectations by 60,000 bpd. These mixed signals highlight the ongoing uncertainty regarding future oil price movements.

A weaker U.S. dollar has also provided support to oil prices, making crude more affordable for international buyers. The dollar index hovered near five-month lows, further easing inflation fears following weaker-than-expected U.S. consumer price data. However, concerns remain that Trump's tariff policies could raise costs for businesses and consumers, potentially driving inflation higher and reducing economic growth.

While oil prices may find support from tightening inventories and a weaker dollar, broader macroeconomic concerns continue to inject volatility into the market. Brent crude faces resistance around the $71.00-$71.50 range, with a break above $72.00 potentially triggering further gains. However, ongoing fears surrounding a slowing global economy and uncertain trade policies keep market sentiment fragile, leaving oil prices caught between supply pressures and economic headwinds.